Sales growth for the iPhone slowed to a crawl last quarter. Apple (NASDAQ:AAPL) set a record, selling 74.8 million units of its signature product, but that was up just 0.4% year over year. Moreover, sell-through to end consumers was down by several million units, offset by a buildup in channel inventory.

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iPhone demand appears to be slowing. Image source: Apple.

To make matters worse, CEO Tim Cook confirmed on the earnings call that Apple expects iPhone sales to decline on a year-over-year basis in the current quarter (Q2 of fiscal 2016). This has led some investors to worry that iPhone sales have peaked.

It's certainly true that iPhone sales growth is slowing. However, the fear that sales have already peaked stems from an unhealthy obsession with year-over-year growth figures. This focus on year-over-year changes ignores the obvious fact that the iPhone has a two-year product cycle.

iPhone sales follow a pattern
It's common knowledge that Apple has maintained an approximately two-year product cycle for the iPhone for many years. In even-numbered years, Apple releases a model with a new number that incorporates major changes from older iPhones.

In odd-numbered years, Apple makes more subtle upgrades or adds new non-core functionality. For example, in 2011, Apple introduced the Siri personal assistant; in 2013, it added Touch ID; and in 2015, it rolled out 3D Touch. To represent this more incremental change, Apple adds an "S" onto the previous model's number.

Not surprisingly, consumers tend to be more excited about the more innovative "number change" models. As a result, iPhone sales follow a clear trend. Sales growth is routinely higher in the year following a number change. (Note that Apple usually launches new iPhones near the end of its fiscal year, so "number changes" actually impact odd-numbered fiscal years.)

Two-year comparisons are more revealing
Given the iPhone's two-year product cycle, year-over-year figures compare apples (no pun intended!) and oranges. One year benefits from a significantly upgraded model; the other year has more modest upgrades to the flagship iPhone.

That's why it makes more sense to look at two-year comparisons. Comparing iPhone sales in a particular year or quarter to sales in the year or quarter two years earlier reveals changes relative to the same point in the previous product cycle.

The following table shows the year-over-year and two-year comparisons for iPhone sales for every fiscal year from 2011-2015, as well as the first quarter of fiscal 2016.

Fiscal Year

Latest Model

Unit Sales Growth (Year Over Year)

Unit Sales Growth (Year Over 2 Year)

2011

iPhone 4

81%

249%

2012

iPhone 4S

73%

213%

2013

iPhone 5

20%

108%

2014

iPhone 5s

13%

35%

2015

iPhone 6

37%

54%

Q1 2016

iPhone 6s

0%

47%

Sources: Apple annual reports, Apple Q1 quarterly earnings reports. 

Year-over-year sales figures show a slowdown in iPhone growth since 2011, but with substantial volatility. By contrast, looking at the two-year comparisons removes a lot of this volatility. The result is a steady downward trend, with the exception of fiscal 2015, when Apple's first-ever "phablet" -- the iPhone 6 Plus -- widened its addressable market.

Based on the two-year comparisons, Apple's first-quarter performance looks quite strong. iPhone sales rose 47% relative to Q1 of fiscal 2014, the first full quarter of iPhone 5s sales. By the time the fiscal year wraps up, iPhone unit sales growth over fiscal 2014 is more likely to be in the 25%-30% range. That still represents a double-digit annualized growth rate, though.

Still some growth left
If the recent trend holds, Apple's growth on a year-over-two-year basis will continue to slow in fiscal 2017 -- perhaps even to single-digits -- but it shouldn't turn negative. That implies a return to year-over-year growth, which should allay concerns that the iPhone has peaked.

The iPhone's best growth days are behind it. However, based on Apple's large and growing iPhone user base, it seems plausible that annual iPhone unit sales could rise to 300 million five years from now, up from 231 million last year. That's more than enough growth to justify holding Apple stock at its current rock-bottom valuation of 10 times earnings.

Adam Levine-Weinberg is long January 2017 $85 calls on Apple. The Motley Fool owns shares of and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.